Construction Sector Stock - Overweight

• A railway linking Tanjung Manis (Tg. Manis) in Mukah and Similajau in Bintulu division in Sarawak is currently being mooted, said The Star over the weekend. • Proposed railway is part of the Sarawak state government’s plans to develop the Sarawak Corridor of Renewable Energy (SCORE). New line is aimed at improving accessibility within the two regions to meet the growing demands and expectations of potential investors. • By 2020, cargo movement between Tg. Manis and Similajau would be about 5 million tonne annually. However, exact status of this project is unknown at this juncture – including its value. • To recap, SCORE covers 70,709sq km - with main settlements and urban centres concentrated in Sibu, Bintulu, Mukah, Sarikei and Kapit. SCORE is to be developed in three phases over a 22-year period (2008-2030) - with a targeted RM334bil worth of investments. Since its launch in February 2008, SCORE has attracted close to RM30bil in investments. • Should it take off, the Tg. Manis to Similajau rail link would be a further boost to the order book replenishment prospects of Malaysian contractors. • More importantly, The Star report quoted Sarawak Chief Minister Tan Sri Abdul Taib Mahmud as saying that development within Tg. Manis is to be accelerated – with a target of making the region a major centre for halal food and biotech industries in three years’ time. • Latest development validates our earlier conviction that infrastructure works within Tg. Manis should perk up – as the region has been identified as one of three major growth nodes within SCORE. • Apart from the proposed rail link, we understand that the Sarawak state government would begin building UiTM’s permanent campus in Tg. Manis by October in addition to a Junior Mara Science college. There have also been plans to widen the port at Tg. Manis at an estimated cost of RM350mil. • Among its peers, we reckon Hock Seng Lee (HSL) [BUY, FV=RM2.00/share] could be a key beneficiary of stronger contract flows in Tg. Manis. As it is, HSL already has an entrenched position in Tg. Manis - group was involved in the initial development of its infrastructure. This includes the RM300mil Tg. Manis integrated deep sea fishing port, the Tg. Manis airport extension as well as associated land reclamation works.